This paper discusses frauds involving AIG and principles of accounting relating to the prevention of these frauds.
Written in 2005; 1,455 words; 6 sources; MLA; $ 48.95
Paper Summary:
This paper explains that the American International Group--AIG, the world's largest insurer--was reported to have arranged deals to manipulate financial figure in its own records and those of General Re, a reinsurance company, resulting in financial fraud during the autumn of 2000. The author points out that AIG also was involved in another accounting fraud with Brightpoint Inc., which was reported by the Securities and Exchange Commission in 2003; AIG worked closely with the Brightpoint people to tailor an alleged insurance policy that let Brightpoint overstate its earnings by an amazing 61% in a cash circulation deal from Brightpoint to AIG and again back to Brightpoint. The paper defines receivables are monies due from the customers, which are tallied by invoices and happen due to operating cycle's process of selling inventory or services on terms that permit delivery before cash is collected.
Table of Contents
The General Re Fraud
The Brightpoint Fraud
Cash & Accrual Basis of Accounting
Receivables and Inventory
Fixed and Intangible Assets
Liability & Stockholders Equity
From the Paper:
"Under the cash method of accounting, the books are maintained on the actual cash flow. Income is recorded on its receipt and expenses enter the books on their actual payment. Whereas majority of the businesses use the accrual basis, the most correct method for the company depends on the sales volume, credit policy of the company and business structure. In case of the accrual method, income & expenses are recorded while they occur, notwithstanding whether there has been exchange of cash and an example of this is sale on credit. Accrual method is appropriate when the annual sales are more than $5 million and the business is a corporate organization. Besides, it is suggested that while selling on credit, matching of income and expenses during a given period must be done."
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